I. Background of the Case
The case begins with Bob Guthrie, a retired physician and an avid skier, who realized that there was a need for a special ski helmet following the recent incidents that lead to serious head injuries for skiers. There were existing ski helmets in the market, but Bob believed that he had a chance to make helmets more appealing to the people, by adding new features. Bob took this idea as something that could not only be an outlet for his creativity, but as a way for him to make some money. He set out with the goal of making helmets that were attractive, safe and fun to wear. With this in mind, Bob came up with several ideas for his new helmet, which he named ‘Ski Right’. Bob wanted his helmets to be attractive, so they had to come in several colors and feature the latest fashion trends and designs. But aside from this, they also had to be fun and useful. To achieve this, Bob thought of putting a built in AM/FM radio and cellphone to the helmets, with controls in a pad on the skier’s leg or arm. Before proceeding to build the helmet, Bob thought of the possibilities of success and failure in his venture. He figured that there was a 20 percent chance that there will be an excellent market for his product, a 40 percent chance that the market will be good, a 30 percent chance that the market will just be average and a 10 percent chance that the market will be poor. With this in mind, he continued his plans. Bob found several companies that could help him build his helmets. Progressive Products agreed to be a partner in developing Ski Right and would share in the profits and losses. Bob also discovered Leadville Barts, who specializes in bike helmets. They could be of great help in the production of the helmets itself. Bob was also talking to Talrad TR, a radio company in Florida, who had experience in making military radios. They could assist in putting the AM/FM radios in the Ski Right. Finally, Bob was meeting up with Celestial Cellular, who could develop the cellphones. Bob Guthrie now has to take into consideration all this information in making the decision of how to make and launch his new product, with the intention of making the most money he can as possible and avoiding failure. II. Problem Statement
Bob’s problem now is deciding which combination of partners would result in the best profits for his new product, Ski Right. His first option is to partner up with Progressive Products in developing the helmets. He also has the option to ask Leadville Barts to make the helmets, which will then be taken by Progressive Products for finishing. His third option is to contract Talrad TR to make the radios for the helmets, which will then be brought to Leadville Barts and Progressive Products. Bob’s fourth choice is to work with Celestial Cellular to make the cellphones which will be passed to Progressive Products for the rest of production and distribution. His final option is to forget about Progressive Products completely, contract the three other companies and hire some friends to assemble and market Ski Right. Other than choosing which of the options would be the best recommendation for Bob, the case also calls for us to compute the expected opportunity loss that Bob would have if he chose one option over another. The group also has to determine what the value of perfect information is, which represents the maximum that Bob should pay in order to get perfect information. The group will also identify if Bob was logical in his approach to setting up his business and making decisions.
III. Model Development
The objective of this study is to identify what would be the most profitable course of action for Mr. Bob Guthrie. Another objective is to identify the opportunity loss in this situation as well as the value of perfect information. In all of the options available to him, Mr. Guthrie calculated the possible profits or losses he would have for every possible state of the market. He also...
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